Roubini: Sovereign Debt Crisis Will Sweep Globe

The weak economic recovery is likely to increase the debt burden of many advanced economies, including the United States, Britain, Japan and several euro zone countries, writes former White House economist Nouriel Roubini.

In his weekly column in Forbes, along with his collaborator, Arpitha Bykere, a research analyst, Roubini, now a professor of economics at New York University, said that the decisions by governments in 2008 and 2009 to do "whatever it takes" to be a backstop their financial systems and keep their economies afloat temporarily eased investor concerns.

“But if countries remain biased toward continuing with loose fiscal and monetary policies to support growth, rather than focusing on fiscal consolidation, investors will become increasingly concerned about fiscal sustainability and gradually move out of debt markets they have long considered safe havens,” writes Roubini.

“Most central banks will withdraw liquidity starting in 2010, but government financing needs will remain high thereafter. Monetization and increased debt issuances by governments in the developed world will raise inflation expectations. These governments will have to offer higher real yields or investors will move to more attractive emerging markets.”

Roubini, who is also chairman of his own consulting firm, Roubini Global Economics, writes that countries like “Germany—whose fiscal imbalances have deteriorated largely due to the economic and financial downturn—might have a greater capacity to stabilize their debt ratio.”

The United States and Japan might be among the last to face investor aversion, he says. The dollar is the global reserve currency and the U.S. has the deepest and most liquid debt markets, notes Roubini.

For some, though, the crisis is already here.

Greece's sovereign debt was downgraded last month after its public deficit rose to 12.7 percent of total output in 2009, far above the 3.0 percent ceiling, according to a report on Agence France Presse, the French newswire.

The weak economic recovery is likely to increase the debt burden of many advanced economies, including the United States, Britain, Japan and several euro zone countries, writes former White House economist Nouriel Roubini.
In his weekly column in Forbes, along with his...